Management Accounting Project

This project explores the role of management accounting in Landmark Brickwork Limited, a construction company. It analyzes different types of management accounting, costing methods, planning tools, and their impact on financial performance. The project also examines how management accounting can help organizations overcome financial challenges and achieve sustainable success.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Define management accounting and its different types.........................................................1
M1 Analyse the benefits of management accounting system within organisation context........3
P2 Illustrate different methods present in management accounting report.
.....................................................................................................................................................3
D1 Evaluate how managerial accounting system is linked with management reporting system.
.....................................................................................................................................................5
TASK 2 ...........................................................................................................................................5
P3 Calculate cost by using appropriate methods and prepare a income statement using
marginal and absorption cost......................................................................................................5
M3 Explain different types of accounting tool and techniques...................................................8
D3 Produce financial report and interpret data for a range of business activities.......................8
TASK 3............................................................................................................................................8
P4 Evaluate the pros and cons of different types of planning tools apply for budgetary control.
.....................................................................................................................................................8
M3 Present the different planning tools and their application in forecasting..........................10
D3 Evaluation of planning tool response towards the solution of the financial problems.......10
TASK 4 .........................................................................................................................................10
P5 Compare how organisation adopt management accounting system in order to respond with
financial problems.....................................................................................................................10
M4 Explain how management accounting can lead business to sustainable success from
financial problems.....................................................................................................................11
CONCLUSION .............................................................................................................................11
REFERENCES .............................................................................................................................13

INTRODUCTION
Management accounting is undertaken in the organisation because it provide accurate and
timely financial and statistical information which was required by managers to carry out their
day to day activities and taking decisions. Landmark brickwork limited is a private construction
company which is incorporated on 2002. It is the UK leading specialist, in brick and a
stonework contractor. Organization registered office is located in Staines, United kingdom . It
was a small enterprise who employed 11 individual approx. the company built all types of
construction from housing to high rise apartment ,large commercial to stone work.
In this report there is discussion of the different types of management accounting. Along
with this, it also present different methods of management accounting report. Further it provides
a income statement on the ground of absorption and marginal costing. Moreover,it illustrate
various types of planning tools used for budgetary control for analyzing the firm performance
appraisal. Lastly, there is comparison with another organisation which tell how management
system support in resolving the financial problems (Kapić, 2014).
TASK 1
P1 Define management accounting and its different types.
Management accounting : It is also known as managerial accounting or cost accounting.
It provide financial and statistical data to the authority of the business so that they can carry day
to day activities easily. It was done by the managers to get the information of various things in
the organisation before taking decision regarding any matter (Granlund, 2011). It present weekly
or monthly reports to a organisation top authority such as department manager and chief
executive officer other than financial accounting which is made for external stakeholders. By the
help of the management accounting Landmark brickwork authority able to know the correct state
of their business and the steps through which they are able to reach the desired position.
Different types of management accounting is described below with their requirements in the
organisation.
Job costing system : Job costing is the activity which is undertaken in the organisation to
estimate the overall cost of raw material ,labour and overhead related to particular task. This
method is beneficial in driving cost in the case of construction a building , producing a small
batches of products. In Landmark brickwork, job costing is best when goods and services are

produced in separate batches on the receipt of order from customer and product specification. By
the help of this report respective organization able to estimate the end result which inform about
the profitability of the project. Construction company used job costing in their working in order
to control the raw material, labor, and equipment cost of the each project (JOSHI and et. al.,
2011). When firm's product is not identical than job costing is best because it divide overhead,
direct material and direct labor cost which help in knowing actual value of the product and
services with other expenses.
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Price optimising system : This system is used for deciding the prices of a multiple
product. As it is known that construction companies each project is different from another so
have the different prices of project. Business use price optimisation formula which depend on the
overall demand of their product, level of competition and cost of producing the goods. It is used
in the Landmark brickwork organisation to know what would be the correct price of the tenders
and construction project which will make profit and easily sale in the market. The company
Landmark brickwork use this system in order to determine their promotion pricing, initial pricing
and discount pricing (Monroy, Nasiri and Peláez, 2012).
Construction Organization can adopt this for knowing the price of different construction
project and the response of contractors on different price levels. Business should adopt this
method when they want to make a decent profit, by selling a contract services quickly at the right
price.
Cost accounting system : It is adopted in the organisation to know the cost incurred in
different business activities (Klychova, Faskhutdinova and Sadrieva, 2014). This method help
organisation to estimate the cost of the commodity for the analysis of profitability, inventory
valuation and cost control. Landmark brickwork can use this method to know what product is
profitable or which one is not which is possible only after estimating the correct cost of the
product. Cost accounting is a process which is undertaken in the organisation in order to capture
the company's cost of production with all inputs and fixed cost. Landmark brickwork can use
this method in order to ascertain the cost and selling price of the project. By the help of this
management able to formulate the business policies. It provide the difference of the actual cost
with the standard cost so that steps can be made in order to improve it to earn large amount of
profit. They are various types of costing methods such as normal,standard and actual costing
which support organisation.
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Inventory management system : Landmark brickwork can adopt this type of system in
their working to achieve effective and efficient flow of inventory at the point of when its need
arises. Inventory management include several things such as controlling and ordering
inventory,storage of inventory and control the amount of product.
Landmark brickwork organization can use this method in their working because it help
them in advance planning and management of the cost required by the company to carry out its
inventory management activities (Mistry, Sharma and Low, 2014). It help businesses in reducing
their cost and to manage their inventory appropriately. For example : Landmark brickwork
construction company use the brick and the cement which was come earlier in the organisation
for the purpose of making building or any other activity. Because if they does not use old storage
material on the time then it will become obsolete and create huge loss to the organisation.
M1 Analyse the benefits of management accounting system within organisation context.
Job costing : It informs about the cost and time involve in the activity so that
organisation people make efforts to achieve it within particular time and money. It provide the
details of the overall cost which was incurred in the organisation.
Price optimizing : Price optimizing method organisation able to link business volume
with profit means that price is set in such a way that it will retain customer. By the help of this
method organisation able to fluctuate their prices of the product according to customer
preference (Tsai and et. al., 2013).
P2 Illustrate different methods present in management accounting report.
Management accounting report is prepared in the organisation to know the business cost
and operations with the help of financial reports and records so that manager can take effective
decision for achieving business goal (Carlsson-Wall, Kraus and Lind, 2015). This report shows
the availability of cash, sales revenue generated, condition of account payable and account
receivable, outstanding debts, inventory and many more statistics. It provide a report to the staff
so that they can make efforts to improve their performance and productivity of the organisation.
The respective company has a experience in providing high quality and cost effective service due
to working with major building contractors and many projects. There are different methods
which was used by the management in order to get complete picture of business working and
performance which are as follows :
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Budgeting reports : It is the most fundamental report in the managerial accounting.
Every organisation creates a overall budget in order to understand the scheme of their business.
A budget is made on the bases of previous experiences, a great budget contain the provision for
the unforeseen circumstance which can be arise in upcoming future (Amidu, Effah and Abor,
2011). Budget is the plan which organisation set out after evaluating organisation performance
and cost. Budget report is very essential in the construction business because they have to present
the estimation expense of the construction project to the organisation . When estimation is done
then organisation able to improve their actual expenses and the cost.
Account receivable ageing reports : This report is profitable for the organisation who
work on the credit basis. Higher account receivable report, point out towards the reduction in the
bad debt and maintaining liquidity of the company. Landmark brickwork use this report in the
organisation because the construction work on credit bases and their consumer always take
services and product on the credit. It is a report which list about the unpaid customers according
to the date (Öker and Özyapici, 2013). It was prepared in the organisation to know about the
personnel and the time in which they are going to make payment in the organisation. By the help
of this method organisation get the information about the repayment schedule of the debtors so
that if they need money to carry business activity it be can arrange from some other source of
fund.
Inventory and manufacturing report : Companies who indulge in manufacturing and
inventory management process prepare this type of report which help them to become more
effective and efficient (Moser, 2012). This report provide information to the Landmark
brickwork regarding the opening inventory and closing inventory so that business able to know
what quantity they need to complete a particular project.
Performance report : It a statement which measures the end result of the activity with
respect to success within a specific time frame. An organisation prepare annual performance
report of each employee so that business can able top prepare their performance report to assess
the success of the project or assignment. Landmark brickwork adopt this report to know the
difference between actual result with budgeted performance and if variation is there than try to
reduce it so that it can't affect financial situation of the business.
Job cost report : It is report which list about each job which organisation working and the
total cost incurred in the previous period on the some other job. Job cost basically related to
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identifying cost, expense and profitability of the particular job. It described about labour cost,
material cost, liquidated damages and field overhead. The job costing help Landmark brickwork
organisation to know all the projects which are in the process and all the expenses which are
made in order to complete the contract on time (Windolph and Moeller, 2012). It leads to better
profitability,project estimating, management decision and financial reporting.
D1 Evaluate how managerial accounting system is linked with management reporting system.
There is a deep relationship between management accounting system and management
accounting report. The inventory process inform about the inventory in the premises so that
there is limited stock in the organisation and the production is done only when there is a need
arises. This was adopted in the organisation to control the inventory production and reduce the
cost of maintenance of goods in the warehouse.
By the help of job costing method organisation able to know the wastage which affect the
working of their project. This method help business to understand the things which impact their
product so that effective measures can be adopted to remove suck kind of wastage (Fisher and
Krumwiede, 2012).
TASK 2
P3 Calculate cost by using appropriate methods and prepare a income statement using marginal
and absorption cost.
Cost is the amount which has been paid or given up on ground of getting something. In a
business cost refers to the monetary valuation of the effort, material, resources, risk taken and
time consumed in the production and delivery of product and services.
Marginal costing : It is also known as the cost of marginal and last unit of output
produced. It is a costing technique where variable cost are allocated to the units of the cost and
fixed cost is write off to the aggregate contribution (Johnson, 2013 ). Basically marginal costing
refers to increase or decrease in the total cost of a production in making a one additional unit of
the commodity. It is different form job costing as it taken place by the management to
understand the impact on profitability due to change in the level of output or production. By the
help of marginal costing managers take number of decision like replacement of machines,
discontinuing of product or service etc. with the help of break even analysis organisation able to
know the impact of increase or decrease of production on the company profitability.
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Absorption costing : It refers to all the manufacturing cost which are absorbed during the
production of unit. Basically, absorption costing includes direct material, direct labour, direct
overheads and the fixed cost. It helps management in decision making process for utilising the
cost information. In absorption costing fixed overhead cost is also included in the each unit of
the product with variable manufacturing cost (Schaltegger and Csutora, 2012). It is used for
external financial reporting and for income tax reporting. Due to all this things absorption
costing also known as full costing and full absorption costing.
Calculation of net profit by using marginal costing method:
Particulars
Amount(£
)
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars
Amount
(£)
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
BEP (Break even point) : In this method the total cost and total sales are equal for getting a fixed
outcome for Landmark brickwork . It refers towards the point where company neither earn profit
nor loss.
A. Total number of product sold in units a
Sales per unit 40
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Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break-even point according to sales revenue
Sales per unit 40
Variable costs VC = Direct Material + Direct Labor 28
Contribution 12
Fixed costs 6000
Profit volume ratio (PVR) = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety : It is the difference between actual sales and break even sales in units
and amount. Margin of safety is essential for the business because it tell management how much
units to be produced in order to remain secure. Higher the MOS represent the safety zone of the
Landmark brickwork organisation and decrease in the business loss risk. If Landmark brickwork
company produce higher the break even point represent the margin of safety.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M3 Explain different types of accounting tool and techniques.
There are various types of tools and techniques of accounting which are taken into
consideration which help business in making effective decision. Some of them are mention
below which are as follows :
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Marginal costing tool : It is a tool in which there is a calculation of cost and the
valuation of stock. It provide management information which help them in planning and decision
making. This method support Landmark brickwork in understand the net profitability of the
firm.
Historical cost : It is the purchase cost of the asset which is mention in the firm
accounting book. Basically it is the original or nominal cost on which organisation acquired the
asset (Johnson, 2013).
D3 Produce financial report and interpret data for a range of business activities.
To deal with various problems and issues which are arising in the organisation create a
need to adopt different kind of costing method. These are the things which help enterprise in
making effective decision. When company use marginal costing in their business than they will
earn the sufficient profit of £17500. If they are adopting absorption costing then the company is
earning a net profit of £15675. Variation in the profit calculated by the marginal costing and
absorption costing is due to the fixed cost. The point where organisation earn no profit or no loss
is at a £ 20000 revenue.
TASK 3
P4 Evaluate the pros and cons of different types of planning tools apply for budgetary control.
Budget is the effective tool through which managers able to get information about the
various cost and expenses can be used by the Landmark brickwork company in order to generate
profit. It is the estimation of the future profit and sales which organisation want to earn.
Budgetary control process : It is the effective tool which support organisation in
knowing the total profit or sales for the future period and different activities (Ward, 2012). By
the help of this process budget and actual performance is measured so that differences can be
removed in the organisation. There are various things which affect the organisation working and
need to be control. By the help of planning organisation able to control various issues which
affect their working. In them some of them are discussed below:
Forecasting tool : It is most common tool which help in the estimation of the upcoming
future and the trends through considering the past and current data. The better they plan
proactive strategies help to grow business and increase the profit.
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Advantages : The main purpose of forecasting is to present the relevant information
which help organisation in deciding activities of the future.
Disadvantages : The estimation is generally based on the subjective inputs, hence not be
taken into account for decision as it not was reliable.
Contingency tool : It helps to tackle the sudden market situation or the disruption on the
company and by the strategies to deal with it (Wickramasinghe and Alawattage, 2012).
Contingency planning allows management to test their plans in pressure and forecast them in
order to handle unexpected. It is consider as a plan B which is used to handle the sudden
situation arises in the department. It is a course of action that is formulated to assist the
organisation for handling various types of risk which affect the performance of the enterprise.
Advantages : An effective plan help business to face all types of adverse issues or
situation which affect the profitability and working of the organisation. Forecasting can only be
done with the support of skilled and knowledgeable staff. The staff prepare report on the
functions or department which help management to know their budget time, people and
resources.
Disadvantages : Ineffective forecasting can lead to make company suffer from any
problems which are arising in the organisation. It is difficult to applied in some situation because
of the complexity present in the method.
Scenario tool : It is the effective tool for the Landmark brickwork which help them to
think about their future. Executive teams build a minor scenario cases which help organisation to
deal with any kind of issues.
Advantages : To face various uncertainty which occur in the department, this is a
technique through which organisation able to make effective decision for their upcoming period
(Windolph and Moeller, 2012).
Disadvantages : Sometimes it does not provide solution to the problems which effect
their decision regarding future growth and development.
M3 Present the different planning tools and their application in forecasting.
For controlling the budget of an organisation manager need to adopt various kind of
planning tool. There are various tools which was used in the organisation for their development
such as forecasting which is used to examine the total cost and expenses which are to spend by
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the company. Contingency tool is adopted in the organisation to control the sudden risk and
situation which can affect the performance of an enterprise.
D3 Evaluation of planning tool response towards the solution of the financial problems.
In order to control various problems related to budget there are many planning tools
which can be used by the organisation. Forecasting tool estimate the issues which can affect the
performance of the company which can be resolved with the help of key performance indicators.
Contingency tool is a reliable tool which is used in the business to control the risk which affect
the organisation performance with their employees productivity (Zainun, Tuanmat and Smith,
2011). This risk can be resolved by using financial governance rules which was formulate to run
a business in more effective manner.
TASK 4
P5 Compare how organisation adopt management accounting system in order to respond with
financial problems.
There are many issues which comes in organisation which results in loss in future period
of time. The issues which are faced by organisation includes low quality of services, high
amount of debts etc.
Low quality of service : Organisation provide low services to their customers because
they are in hurry to grab more and more contract and finish their work as early as possible.
High amount debts : The company is suffering from high amount of debts because their
credit policies is not good and they put less focus on the unpaid debtors to recover amount form
them (Kuula, Putkiranta and Toivanen, 2012).
Application of tools to overcome from financial issues
KPI (key performance indicator ) : It provides the measurable value which help
organisation in achieving business objectives. By the help of this enterprise able to improve their
quality of services because it provide the indicators which refer when the performance is going
on the lower level to take care of it.
Benchmarking : It measures the quality of the organisation policies and programs and
compare it with standard measurement or similar measurement. By the help of benchmarking
organisation able to reduce the high amount of debts. In benchmarking they can set the target
beyond which enterprise not able to provide the services on the credit.
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Landmark brickwork RL Maynard
This organisation uses benchmarking tool to
overcome from the issue of bad debts.
This will use the tool of financial governance
to properly comply with all financial
regulations which aid in future to overcome
from issues
This organisation use financial KPI tool as they
face issues in arrangement of financial terms
Non KPI tool I used to improve the existing
performance of employee as this will aid in
improving their relation with superiors.
M4 Explain how management accounting can lead business to sustainable success from financial
problems.
Organisation accounting lead to consider effective formation of marginal accounting that
used to record specific information about different tools which are taken into account for
forthcoming development of an organisation (Dražić, Lutilsky and Dragija, 2012). There are
many accounting problems which affect the working of various departments. It is very crucial
because it get affect growth and earning capacity of the organisation. Business problems get
solved by the help of the different management accounting as it provide solution before the
problem arises.
CONCLUSION
From the above discussion ,it is concluded that management accounting help organisation
to know the actual position with the help of statistic so that business can take its decision
properly. By the support of management accounting organisation able to make changes in their
financial position. For this aim, business owner and its employees need to use various types of
accounting system and reports to summarise their business transactions. Likewise,inventory
management is used in the organisation in order to know the correct position of the inventory. By
the use of planning tools enterprise able to control their estimated budget. All the above
evaluation is done to understand various financial problems which affect organisation working
with the measures. It help business in understanding the outcomes they will get in upcoming
future.
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Online
What is absorption costing. 2018. [Online]. Available through
<https://www.accountingcoach.com/blog/absorption-costing>
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